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Unearned Income, Government, Semiconductors Drive Idaho Employment

Idaho’s major economic drivers include government, construction, computer chip manufacturing, the food products cluster and unearned income from Idaho households.

In 2012, 146,000 jobs or 23.5 percent of all Idaho jobs were generated by unearned income – money the state’s households received from outside sources in pensions, Social Security, returns on investments, food stamps, welfare payments, unemployment benefits and other so-called transfer payments.

Government was the next strongest economic force, supporting nearly 16 percent of all employment both regionally and statewide.

Only a small fraction of those jobs were attributable to people commuting to work outside of Idaho.

These findings are based on an analysis using economic base theory, which determines whether economic activity generates revenue from outside the local economy or merely recirculates existing revenue.

Economic base theory looks at industry sector employment based on the new revenue it generates in the local economy rather than the number of jobs it provides. Employers who export goods or services outside the local economy and bring in new dollars are stronger economic drivers than those who recirculate money that already exists within a local economy. Computer and electronic product manufacturing, for example, provides 1.3 percent of Idaho’s jobs – gross employment – but is responsible for 6.1 percent of all employment – base employment – because the money it brings into the state from sales of computer chips throughout the rest of the world underwrites higher wages that enable people to buy more goods and services locally. Wholesale trade, on the other hand, provides 3.3 percent of Idaho’s jobs but accounts for 1.7 percent of employment because it recirculates money already in the local economy, providing little new cash to expand economic activity.

Such sectors generally support those that export goods and services and traditionally include businesses like bars, restaurants, hospitals and professional services such as lawyers and accountants. Even these businesses generate outside revenue – bars and coffee shops sell beer or coffee to someone from outside the region, and hospitals serve as regional medical hubs, drawing patients in from outside the local area.

The unearned income that contributes to southwestern Idaho’s economy accounts for no jobs in gross but is responsible for nearly a quarter of all employment within the region. In other words, without that household’s unearned income, 24 percent of all jobs in the region would disappear.

Despite being hit hard during the recession, the contribution of computer and electronic manufacturing was still quite significant in southwestern Idaho at more than 13 percent. The difference between gross employment, at 2.5 percent, and the high base employment is the multiplier effect these high-tech jobs have throughout the regional economy. Because the value of the product is high, and nearly all the product – semiconductors and computer memory – is exported, wages are high. These wages are spent within the regional economy, supporting hundreds of additional jobs. For example, although there are three times as many jobs in administrative and support services – 7.5 percent – the number of jobs that computer and electronic manufacturing supports throughout the economy is almost four times that of administrative and support services. The average wage in computer and electronic product manufacturing was $108,000 compared with $23,000 in administrative and support services. Therefore, the impact of job losses in computer and electronic product manufacturing is much more significant that the loss of administrative and support service jobs.

Only one other region, southeastern Idaho, had computer and electronic product manufacturing in the top 10, and it ranked ninth in that region.

Even in 2012, as the state’s economy slowly recovered from the recession, construction jobs in southwestern Idaho supported nearly 10 percent of all employment in the region. Food manufacturing was next, supporting 4 percent of the region’s employment. Rounding out the top 10 were administrative and support services with 3.5 percent of base employment; professional, scientific and technical services with 3 percent; crop production with nearly 3 percent; wholesale trade with almost 2 percent; and hospitals at 1.4 percent of base employment.

Regional Comparison

Regionally, household unearned income was a major economic drivers in other parts of Idaho as well. Only in north central and eastern Idaho did households finish second to another sector – government in north central Idaho with its concentration of resource management agencies, the University of Idaho and Lewis-Clark State College — and professional, scientific and technical services in eastern Idaho where the Idaho National Laboratory operates.

Northern Idaho had the highest contribution to employment from households at 29 percent. That region may be more affected than others by outside earned income rather than unearned income because of residents working across the border in Spokane, WA, and an influx of retirees.

Construction also plays a major role in each regions’ economic base. In all six regions the base contribution of construction is greater than its gross employment.

Food manufacturing is prevalent throughout southern Idaho, especially in the south central part of the state where its economic impact is three times its actual employment. Food processing is augmented by basic crop and animal production. Taken together, the three are responsible for a third of the region’s jobs.

State Comparison

When comparing Idaho to four surrounding states, each with different economic standing, households drove the biggest share of employment in each state, indicating the combination of extra regional transfers of welfare payments, investment income, retirement payments and interstate commuting are important to the employment picture. These transfers of unearned income affect the composition of employment in an area. Examining the expenditures of the recipients of these payments is a good way to predict future employment.

Idaho, despite having more public land than any of the four comparison states, has the lowest percentage of employment driven by government. Washington has the highest at just under 20 percent. All four states have similar percentages of employment driven by construction. The final industry that is in the states’ shared top 10 is professional, scientific and technical services. Washington has the highest base employment in this industry at roughly 7 percent while the others are under 5 percent. Beyond these, there are no other industries in the states’ shared top 10.

Animal production and aquaculture – which supports about 2 percent of employment across Idaho – is the only top 10 industry not shared by any other state. Primarily concentrated in the south central part of the state along the Snake River, animal production and aquaculture, crop production and food product manufacturing generates over 12.5 percent of employment statewide, not just in the region. While Montana has slightly higher base employment in crop production, Idaho’s food cluster as a whole plays a significant role.

Understanding the sources of revenue that drive employment in Idaho is important to informing intelligent policy that can help guide the growth of the economy. Within the state, the major drivers are unearned income (households), government, construction, computer chip manufacturing and the food products cluster. The importance of these institutions and industries to Idaho’s economic growth should be not be understated when crafting economic development objectives or creating economic policy.

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